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Chapter 3: Q.11RQ (page 157)

Question :What is a contra account?

Short Answer

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Answer

A Contra account is an account that has the opposite normal balance as compared to a related account.

Step by step solution

01

Explanation of Contra Account

The Contra account is the opposite account of the related account. It is tied up and listed immediately below the related account in the financial statement.

02

Example of Contra Account

Accumulated depreciation- Building is a contra account to building account. Building account will have a debit balance. However, accumulated depreciation will have a credit balance. This contra asset account balance will be subtracted from the normal balance of building account to measure the book value of the building.

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Most popular questions from this chapter

On September 1, Big Fan of Toledo prepaid six months of rent, $3,300. Requirements 1. Record the journal entry for the September 1 payment. 2. Record the adjusting entry required at September 30. 3. Using T-accounts, post the journal entry and adjusting entry to the accounts involved and show their balances at September 30. (Ignore the Cash account.)

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

What is the difference between cash basis accounting and accrual basis accounting?

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

What are the two basic categories of adjusting entries? Provide two examples of each.
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